Hedge Fund Wizard Stevie's Bad Month

By Kumar, Nikhil | The Independent (London, England), November 3, 2012 | Go to article overview
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Hedge Fund Wizard Stevie's Bad Month


Kumar, Nikhil, The Independent (London, England)


First his man loses the election, then a former employee faces insider trading claims, Nikhil Kumar reports

It's been a bad November for Steve Cohen. On election night, the hedge-fund wizard was, according to a report, among the legion of billionaires who'd assembled in the ballroom at the Boston Exhibition and Convention Centre to herald President Romney. And then, a fortnight on from the Republican nominee's drubbing at the polls, Mr Cohen's name was linked to alleged insider-trading perpetrated by a former employee.

Two days ago, during a conference call, he told clients that his $14bn (8.7bn) SAC Capital hedge fund - a business he founded with just $26m in capital - could face civil claims after the US market regulator issued a notice indicating that it was considering filing charges, reportedly connected to the insider-trading case.

Mr Cohen and SAC have not been charged, nor have they been named in the criminal action against Mathew Martoma, an ex-portfolio manager at CR Intrinsic, an SAC fund.

While still working for SAC, Mr Martoma stands accused of trading shares in two pharmaceutical companies after obtaining secret details about ongoing drug trials. Prosecutors allege that, based on this insider knowledge, he recommended trades to his "hedge-fund owner," widely identified as Mr Cohen. Mr Martoma's lawyer has said he is confident his client will be exonerated.

Though damaging for any business, the allegations against Mr Martoma and the threat of civil action by the Securities and Exchange Commission (SEC) may be all the more problematic for SAC, coming as they do after a series of cases involving ex-employees.

At least six former workers have been implicated in insider trading while at SAC. Prosecutors have secured three convictions.

Recently, in a high-profile instance in 2009, investigators looking into the Galleon insider-trading scandal reportedly probed the activities of an unnamed ex-SAC analyst - though neither SAC or Mr Cohen was accused of any wrongdoing.

"In some respects I feel like Don Quixote fighting windmills. There's a perception, and I'm trying to fight that perception," Mr Cohen said in a 2010 Vanity Fair interview.

He was referring to what he saw as attempts by the press to tar his firm's reputation by suggesting, often obliquely, that something wasn't right about the way it generated eye-popping returns. SAC's - and Mr Cohen's - success has, if nothing else, certainly been noteworthy.

The tech-bubble was a defining moment for the Long Island-bred son of a garment manufacturer.

He was among the handful of savvy investors who made money not just as the froth built up, but also, and in spectacular fashion, when the facade cracked, betting against overvalued stocks before they dropped.

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